What’s standing in the way of South Africa’s entrepreneurs?

Industrialisation is a key driver of sustainable development. It creates jobs, adds value and promotes trade through greater integration into global value chains. At the same time, entrepreneurship and small and medium enterprises (SMEs) are critical to every economy by creating jobs and innovative goods, promoting a competitive environment and economic growth, and facilitating income distribution. The South African government recognises the need for entrepreneurship and SMEs’ engagement with industrialisation efforts to address some of the key socio-economic challenges in the country, particularly poverty, inequality and unemployment. However, South African entrepreneursstill face a number of constraints that hinder greater participation in industrialisation efforts. So, what are the roadblocks standing in the way of entrepreneurs?

During the apartheid era, the domestic economy was protected, relying primarily on capital intensive minerals for export. Diversification into other industrial sectors was limited, and apartheid legislation stymied the growth of black-owned businesses. This led to widespread unemployment, inequality and ultimately low levels of competitiveness and productivity.

Post-1994, the South African government’s primary goal was to reverse isolation and low growth and to signal openness to the world. Yet, changing the institutionalised structure of the economy has proven difficult. Industrial policy post-1994 focused on trade liberalisation and export promotion. This meant reducing tariffs and signing free trade agreements (FTAs) and bilateral investment treaties (BITs). Policy makers gradually began to raise concerns that fully liberalising trade might hinder industrial development through competition with industrialised countries. The current industrial strategy aims not only to promote exports but also to deepen localisation in labour intensive industries. It is still too early to know whether South Africa’s current industrialisation strategy has been able to balance liberalisation and protectionism.

At the same time, the business environment has further hindered South Africa’s industrial entrepreneurs. The World Economic Forum’s (WEF) Global Competitiveness Index (GCI), measuring the competitiveness landscape of 138 economies, ranked South Africa 45th in the 2016/2017 index. While larger companies can rely on economies of scale to overcome some of these challenges, all businesses, including entrepreneurs and SMEs, are affected by the overall environment. How?